On 31 October 2008, a cryptographer, using the pseudonym Satoshi Nakamoto, published a whitepaper describing Bitcoin as a “peer-to-peer-based electronic payment network”. This novel design was a new financial infrastructure based on cryptographic technology that did not rely on third parties. The Bitcoin whitepaper generated much debate at the time because many electronic payment plans had failed to work. But now, cryptocurrencies are a common topic of discussion, and some countries are even researching to create their own digital currencies inspired by crypto technology.
The underlying data structure of Bitcoin technology, also known as blockchain technology, is now being researched and implemented for supply chain management, such as logistics and energy exchange systems. Decentralised organisations are also using it. The Bitcoin system has now become the pioneer of many new processes, but, how was Bitcoin developed to become the model for other systems?
The Ideology of Bitcoin
With its decentralised nature, talking about ideology may seem strange. But Bitcoin initially received much support from individual technology activists, andindividuals with libertarian or anarchist ideologies. Bitcoin’s adoption from communities with these ideologies has defined the value and also the fundamental design of Bitcoin.
When Satoshi unveiled his Bitcoin proposal, it received considerable attention and criticism from the cryptography community and computer researchers. Some of these individuals wereinvolved in previous attempts to create digital cash systems. For them, Bitcoin was the latest attempt to create a financial system that respected individual freedom and privacy. When we trace the roots of Bitcoin’s ideology, we find that the formation of Bitcoin has received a lot of attention from communities with cypherpunk and extropian ideologies.
Public Key Cryptography
For centuries, cryptography, also known as secret sharing technology, relied on multiple parties agreeing on a secret key to describe a message. This method consistently runs the system by solving the problem of key sharing, often referred to as systemic key encryption. In the past, this was done by face-to-face meetings or using trusted couriers. This system was not only weak at some points but also impractical to implement on a large scale.
In the 1970s, an alternative method of secret message sharing emerged and was known as asymmetric key encryption, also known as public key cryptography. In this system, all parties have public and private keys. For example, if Nolan wanted to send a message to Gina, he would do so with Gina’s public key. From there, Gina would translate Nolan’s message using her private key. In this system, all parties must agree to the existence of the secret message before the exchange. Nolan can also digitally create a message to Gina using his private key, allowing Gina to use her public key to verify the message’s authenticity.
Combining these two keys with digital signatures is the basis of crypto technology that has been used as a secure communication system and as the foundation of the protocols of the internet system so far. It is also the basis of today’s digital financial system.
The birth of Bitcoin
Many books, as well as YouTube shows and podcasts have explained the history of Bitcoin in detail. Here is an explanation of how this asset has significantly influenced the development of cryptocurrency.
After Satoshi Nakamoto published the Bitcoin proposal to his mailing list, he opened an online-based group. There, cryptographers, computer researchers, and veterans who had made digital cash systems could gather and discuss openly. Although Satoshi had written the basic Bitcoin code before publishing his whitepaper, he opened it up to scrutiny by individuals from the online community.
Initially, Bitcoin was publicly available software maintained by a community of developers and crypto-enthusiasts. In January 2009, the genesis block (the first block in the network) was finally mined by Satoshi. This initial transaction is also referred to as the generation transaction or coinbase.
In this genesis block, Satoshi wrote a message, recorded in the blockchain network to this day, that reads, ‘The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.’ This message clearly shows the intention behind Satoshi Nakamoto’s creation of Bitcoin, which was to create a financial system not controlled by the state.
The first use of Bitcoin as a medium of exchange occurred in May 2010, when a Florida-based programmer named Laszlo Hanyecz offered 10,000 BTC for a pizza. The Bitcoin exchange rate had only just emerged a few months earlier. At that time, the valueof two large pizzas was approximately $25 USD. Whereas now, the value of the two pizzas, when using 10,000 BTC, is up to hundreds of millions of US dollars.
The famous Hanyecz transaction is often cited in discussions about using
Bitcoin as an exchange value for goods and services. It is an example of how Bitcoin’s value has changed greatly in the history of its development, making it an effective currency. With a limited supply of 21 million BTC, people now use it as a long-term investment tool rather than a medium of exchange for goods and services. Nonetheless, the Hanyecz case set the precedent in proving that Bitcoin can be used as a digital currency.
BTC rush: History of Bitcoin Mining Development
In the early days of Bitcoin, people participated in the network by mining Bitcoin. The Bitcoin platform was designed to reward miners for successfully validating transactions in the blockchain system. It was also the system for printing new Bitcoins as currency.
In November 2010, pools, a collective group of miners, were first launched. Slush Pool, which is the oldest pool in the history of Bitcoin mining, created a system where mining is done using the combined computational energy of each member. The results are divided equally based on the capital spent by each miner. Since then, Bitcoin mining has become a large-scale industry that generates millions of US dollars in profits. The Slush Pool itself is an important sign of the history and development of the Bitcoin network itself.
Silk Road is an illegal marketplace only accessible through Tor, a secret browsing service. Bitcoin is the currency used in the platform’s transaction system. Silk Road was created as a platform where people couldmake transactions freely outside of restrictive legal regulations. In addition to being a place to buy and sell services and goods, the platform is also a forum where libertarians and other dissident groups gather and discuss.
After the platform became a place to buy and sell illegal drugs, its creator Ross Ulbricht was arrested and imprisoned. Up to 30,000 BTC was seized by the law. This case was one of the key histories for Bitcoin. It became the currency of choice for illegal transactions, whichlater became the epitome of individual freedom.
On 26 April 2011, Satoshi Nakamoto left the Bitcoin project and handed over the reins to Gavin Andresen and the platform’s open community. Before this point, platformdevelopment was still led by Satoshi.
The mystery of the creator’s anonymity is one of the foundations of the Bitcoin project’s success and persistence. With law enforcement keeping track of the development of illegal cryptocurrencies in the years that followed, Satoshi’s disappearance was natural. Satoshi’s departure from the Bitcoin project is essential for Bitcoin to remain true to its original ideology of being decentralised and not using third parties, including the creator.
WikiLeaks is a platform created by Julian Assange as a whistleblower site that leaks confidential documents and data assets containing ‘strange’ activities from governments and large companies. In June 2011, WikiLeaks started accepting donations via Bitcoin after PayPal, and other legal bank accounts froze their accounts. It makes sense because Bitcoin provides a global transaction system, is not limited by borders, and is not under the control of any government or third party.
Nevertheless, Satoshi explained his concerns over WikiLeaks’ use of Bitcoin. While this incident brought much attention to Bitcoin, it would be nice if the attention brought a good name to the cryptocurrency he had created. He explained that WikiLeaks had knocked over a hornet’s nest, and the hornets were flying to attack Bitcoin.
Mt. Gox is an exchange platform that was once the largest Bitcoin exchange in the world and was launched in July 2010 by a developer named Jed McCaleb before being sold to Mark Karpeles. But in 2014, the site was hit by a hacker attack and assets totalling approximately 700,000 BTC disappeared. This catastrophe for the crypto industry highlighted the risks of cryptosystems in general. It also questioned whether Bitcoin users trust their assets to be held by others or whether they feel safer keeping them themselves. This chapter exemplifies risk management considerations in creating services and infrastructure that manage valuable assets.
The New York BitLicense
On 17 July 2014, the New York State Department of Financial Services granted the proposed ‘BitLicense’ regulation This official permit for cryptocurrencies has strict regulations or restrictions for any assets used in digital business within the New York area. However, the BitLicense rule has been criticised because the cost of obtaining the licence makes it difficult for small businesses to afford. The BitLicense regulation was updated in 2020 with a variation of the standardised framework for crypto regulation. From there, digital money companies such as PayPal now offer Bitcoin as one of the crypto assets held under its BitLicense licence.
The Lightning Network
At first, the Bitcoin system could not compete with the speed of transactions that money transaction providers like Visa and Mastercard could do. Until finally in January 2016, Joseph Poon and Thaddeus Dryja issued a whitepaper explaining ‘The Lightning Network.’ This second layer of Bitcoin scaling efforts can make the transaction validation process run faster. The system has been running on the Bitcoin blockchain platform since March 2018. It continues to evolve as a vital part of the Bitcoin system infrastructure.
The Bitcoin Scaling Wars
SupposeThe Lightning Network is a technical solution that can facilitate high-frequency Bitcoin transactions. In that case, there is still the problem of Bitcoin’s growing blockchain development. In 2016 and 2017, the owners of the Bitcoin network, consisting of miners, developers, and the companies that built it, had discussions and heated debates about options for the scalability of the Bitcoin system going forward. The debate is referred to as the Bitcoin Scaling Wars, and there are two concepts underlying the discussion: the size of Bitcoin blocks and the energy distribution of the network itself.
The debate was enlightening for the decentralised Bitcoin network in reaching a consensus on critical protocol updates when there are many factors to consider. In Satoshi’s absence, it was only a matter of time before Bitcoin stakeholders became divided on the future development of Bitcoin. This division ultimately made Bitcoin experience several challenging events that gave birth to Bitcoin Cash (BCH), Bitcoin Gold (BTG) and Bitcoin Satoshi Vision (BSV).